Enterprise Toxic Waste

In a complex adaptive system of knowledge workers, the ability of a group to creatively adapt to an external stimulus becomes impossible once all of the organization’s energy is expended on maintenance of internal homeostasis. To the extent that leadership is an emergent property of the system – in which an individual organically focuses collective energy into new adaptation in response to an external stimulus – it can distribute the pressure to innovate across the entire organization. When all potential energy is focused on individual self-protection, emergent leadership is stifled. The superorganism “behaves” exactly as any evolving species “behaves” – when conditions are favorable, individuals focus resources into reproduction, increasing the likelihood of variation and aggregate potential for adaptation as a species. When conditions are unfavorable, resources are dedicated to individual self-preservation, reproduction is reduced, and the species is “culled” leaving only the adaptations that best fit the pressures of the current unfavorable context. This ebb and flow of creativity and narrowing is seen within the organism as well: in favorable conditions, the cells work toward reproduction, maintaining the health of the system (the body) while in unfavorable conditions the individual cell maximizes its own self-preservation to the detriment of the body (cancer).

“Tech” – currently represented by software, apps, and the web, thrive on innovation and disruption. The industry as well as organizations attempting to compete through innovation is driven by the desire to maintain a continuous state of innovation at the superorganism level; instead, most superorganisms (companies, the enterprise) even in the software industry remain cancerous, slowed to a near-death state, presenting painful symptoms far removed from the root cause of dysfunction.

This wasted potential for innovation, sustainable competitive advantage, minimum viability, and adaptive survival is not the fault of any individual and is not strictly caused by the official mission or formal structure of the organization. This is a cultural issue, not a policy issue.

The formal leaders of a complex system, the managers and executives who are synthetically, socio-contractually positioned to act as the official drivers of innovation (or “vision” or “strategy”) for the organization cannot bureaucratically force creativity and adaptation, as these must emerge organically from favorable conditions across the whole. Often the formal leaders are charged with being the exclusive source of adaptive creativity despite the fact they are typically in the worst position possible far removed from the external stimulus – to be relied upon for the emergent leadership that drives innovative adaptation. The inherent waste then is two-fold: the official manager is unlikely to consistently display emergent leadership while the presence of a formalized leader prevents others from organically emerging. Whether the creative adaptation desired by a manager is valuable and likely to succeed or not, the manager must force action against the system, as a toxin, a betrayal of the natural state of the system. In response, the complex adaptive system protects itself against the likelihood of a failed adaptation through cancerous self-preservation of maladaptive patterns.

Unfortunately, if this continues in the context of increasing demand, the growth to supply it exacerbates the likelihood of failed formal leadership and the need for individual or self-preservation. The waste only grows. To counter the failure of fewer, more detached formal leaders, the existing formal leaders of many organizations continue to add formal layers in hopes that elevating “high-performers” to official power can mitigate the systemic failure to adapt properly. This is problematic because the optimization of formal management further decreases the likelihood that any enmeshed individual could organically emerge to lead systems adaption – every individual is progressively more disconnected from the system as a whole. Silos arise, stage-gate processes are crystallized, and creativity – without needing to be actively stifled – is now unlikely to impact the system as a whole.

Before we move on, promise me you understand: lean does not mean layoffs. Toyota’s dedication to the individual on the factory floor is central to its success. If you try to mimic their process improvement, focus exclusively on eliminating waste, and then cut staff to save money, you’re doing it wrong. That’s a huge leadership failure. Hacking off a portion of a complex adaptive system will direct any energy gained from increased efficiency toward self-protection. It is never worth it.

Game Theory shows us that the best way to build sustainable competitive advantage is to invest in resources that create and maximize information asymmetry against our competitors. On the other hand, we must also raise barriers to exit and increase switching costs for our scarcest resources, people. The more scarce, unique, and hard-to-steal your people are, the more defensible your unique value proposition and the higher your economic rents. This requires a culture in which the individual has psychological safety in which to take prudent risks. Trust – the kind that is earned through time in battle together – really trusting in peers, superiors, and subordinates is essential. The individual must be invested in and given the resources necessary for their pursuit of mastery, autonomy, and purpose. Only then can teams organically self-organize around new forms of adaptation.

Inside that organization, you need the opposite conditions compared to the outward-facing competitive landscape in order to maintain margins and economic value captured. Maximizing market information asymmetry requires close to perfect internal symmetry of knowledge – in other words, alignment. Real alignment of understanding of the problem, the objective, and the acceptable risks in pursuit of a solution. You need continuous throughput that maximizes value add and minimizes waste. You need low barriers to meaning and purpose and high barriers to exit. You need slack and creativity. You need to encourage the tension and paradox and dissent that creates new ideas, while ensuring the organization as a whole is respect-based and disciplined about change.

In Lean we call this Minimum Viable Product. The “product” that must be minimally viable is not a product on the shelf that a consumer buys. The “product” is the sustainable business model that creates economic value that can be captured. Whether there is one product for sale or hundreds, built by 15 people or 5,000, the minimum viable product is minimal if all consumers receive more economic value than their transaction cost at a price that is great than the cost of production; it is viable if there are enough consumers and enough demand to make the business model of production sustainable.

Seen in this way, the upgrading of any resource across the value stream to maximize minimum viable production should be considered as part of a single improvement roadmap, regardless of its handling by accounting “on the books” – whether it is an enhancement to a software product, brand recognition, acquisition of a competitor to gain market share, or training developers on a new programming language or delivery methodology. In the end, all of these initiatives are the investment of capital for the purpose of economic value creation protected from competitive influences through creation and protection of unfair advantage.

This is critical – and why vanity metrics are so dangerous. Even a very unhealthy, unsustainable company can create conditions of information asymmetry that protect its existence in the near-term, but touting a graph that shows increasing revenue, increasing company size, and increasing market share / number of customers does not paint a sufficient picture of the sustainability of the business model. These numbers are a given. When they aren’t, companies love to find some other numbers that comfort them instead.